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The advent of corporate limited liability in Prussia 1843

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  • Ilgmann, Cordelius
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    Abstract

    Corporate limited liability has a long and contentious history, stretching back to the mid-19th century and beyond. Initially being hailed as one of the decisive legal invention of our age, recently scholars have highlighted the negative effects of curtailing liability. This in turn has inspired research in the historical origins of liability. While the debate on the adoption of limited liability for joint stock companies in Britain and the United States in the 19th century is comparatively well documented, little is known about the contemporary German debate. Thus, this paper aims to shed light on the debate within the Prussian Government which surrounded the Stock Corporation Act of 1843. Drawing on primary sources of the debate within the Prussian administration in the course of the legislative process, it tries to examine whether limited liability was indeed seen as a prerequisite for the existence of joint-stock companies as its supporters claim. I find that in line with British and American experience limited liability was not universally seen as a necessary condition for incorporated joint-stock companies. In fact, the course of the debate suggests that limited liability was finally introduced because the administration wrongly assumed that joint stock companies always comprised a large number of shareholders with little equity each, being obviously unaware of the possibility of joint stock companies being dominated by large shareholders and institutional investors. Moreover, limited liability for shareholders was regarded as being similar to that of passive sleeping partners, a justification that seems problematic in the light of today's virtually all powerful institutional investors. --

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    Bibliographic Info

    Paper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series CAWM Discussion Papers with number 46.

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    Date of creation: 2011
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    Handle: RePEc:zbw:cawmdp:46

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    1. Cordelius Ilgmann & Ulrich Suntum, 2008. "Ist die Finanzkrise eine Krise der Marktwirtschaft?," Wirtschaftsdienst, Springer, vol. 88(11), pages 741-745, November.
    2. Hickson, Charles R. & Turner, John D. & McCann, Claire, 2005. "Much ado about nothing: the limitation of liability and the market for 19th century Irish bank stock," Explorations in Economic History, Elsevier, vol. 42(3), pages 459-476, July.
    3. John D. Turner, 2009. "Wider share ownership?: investors in English and Welsh Bank shares in the nineteenth century -super-1," Economic History Review, Economic History Society, vol. 62(s1), pages 167-192, 08.
    4. Graeme G. Acheson & John D. Turner, 2006. "The impact of limited liability on ownership and control: Irish banking, 1877-1914 -super-1," Economic History Review, Economic History Society, vol. 59(2), pages 320-346, 05.
    5. Ed Nosal & Michael Smart, 2007. "Limited liability and the development of capital markets," Working Paper 0703, Federal Reserve Bank of Cleveland.
    6. Hickson, Charles R. & Turner, John D., 2003. "The Trading of Unlimited Liability Bank Shares in Nineteenth-Century Ireland: The Bagehot Hypothesis," The Journal of Economic History, Cambridge University Press, vol. 63(04), pages 931-958, December.
    7. Acheson, Graeme G. & Turner, John D., 2008. "The death blow to unlimited liability in Victorian Britain: The City of Glasgow failure," Explorations in Economic History, Elsevier, vol. 45(3), pages 235-253, July.
    8. Turner, John D., 2009. "‘The last acre and sixpence’: views on bank liability regimes in nineteenth-century Britain," Financial History Review, Cambridge University Press, vol. 16(02), pages 111-127, October.
    9. Acheson, Graeme G. & Turner, John D., 2008. "The secondary market for bank shares in nineteenth-century Britain," Financial History Review, Cambridge University Press, vol. 15(02), pages 123-151, October.
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    Cited by:
    1. Konov, Joshua Ioji, 2012. "Market Economy under Rapid Globalization and Rising Productivity," MPRA Paper 48750, University Library of Munich, Germany.

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